PETALING JAYA: SDS Group Bhd
, which manufactures bread and confectionery products for distribution via wholesale and retail channels, reiterated its guidance for expansion in both the wholesale and retail segments.
The company also plans to introduce more stock-keeping units (SKUs) and acquire land in Johor for future expansion, according to Kenanga Research.
The research firm said SDS’ wholesale segment contributed two thirds of total revenue in financial year 2022 (FY22) and will be adding 25 trucks in FY24 to its existing fleet of 281.
A larger fleet will enable SDS to increase the distribution frequencies at its established markets and expand geographically, said Kenanga Research.
On the retail side, SDS plans to add three to five retail cafe and bakeries in FY24 versus the 36 outlets it has as at the third quarter ended Dec 31, 2022.
The new outlets will be located in the Klang Valley and Johor Baru and is slated to be launched by the third quarter of this year.
As for its land acquisition, SDS recently announced the purchase of two pieces of land measuring a total of 6.9 acres in Tebrau, Johor, for RM9.4mil.
According to Kenanga Research, the company plans to construct a new facility there to meet future demand.
“Meanwhile, SDS is adding two to three new SKUs with new flavours to boost sales. We understand that it recently launched some new croissant bread in Johor Baru to gauge the response from the market.”
However, Kenanga Research said it was lowering FY23 and FY24 earnings forecast by 12% and 11%, respectively, to reflect higher operating cost, particularly staff cost, following the recent amendment to the Employment Act that reduces the maximum weekly working hours to 45 from 48.
“That said, we still project the company to deliver earnings growth of 134% and 28% in FY23 and FY24, respectively,” it added.
In its report, Kenanga Research reiterated its “add” call on the stock with a revised fair value of RM1.02 (from RM1.15).
This is premised on a 13 times FY24 forecast earnings per share, which is line with the one-year price-to-earnings multiple mean of 13 times that of domestic staple food producers.
